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Who pays debts on behalf of an estate?

On Behalf of | Jul 10, 2023 | Probate & Estate Administration

In some cases, a person passes away after making poor financial decisions, and they have an incredible amount of debt. But it could also be that things happened that were outside of their control. Maybe they made wise decisions and simply contracted a deadly disease that cost millions of dollars to treat. Most people couldn’t absorb that kind of cost no matter how smart they were with money for the rest of their life.

But even someone who doesn’t have extensive debt may still have minor debts that aren’t taken care of before they pass away. An example of this could be paying property taxes, paying income taxes or paying off credit card bills. These types of small debts are going to remain outstanding even after the one who incurred them is gone. Understandably, heirs are sometimes worried that these obligations are going to transfer to them along with their parents’ assets. Do they have to pay off the debts that their parents have left behind?

Using funds from the estate

In rare cases, children have cosigned on loans with their parents or have been named as joint account holders. They may be responsible for those financial accounts if they are also listed on them. However, in most cases, a parent’s debts are completely separate and they will not be inherited by the individual’s children. Instead, they will simply remain part of the individual’s estate. They will need to be addressed, but adult children do not have to worry about inheriting the debts or being forced to pay them off.

Instead, the estate administrator will use the money from the estate to pay off the debt. In many cases, the administrator will just pay off a number of small debts using a minor percentage of the estate’s value, and everything else will then be distributed. But there are also cases wherein someone’s debt is extensive and most of the assets from the estate will be used up paying it off before the remainder can be distributed to heirs and beneficiaries.

This process can be complicated, as many financial situations are after someone’s passing. Those involved need to be sure that they are well aware of all of their legal rights and obligations both during the estate planning and estate administration phases of someone’s situation.